Between 2010 and 2014, taxes on wages rose by 1 percentage point to 35.9% for the average worker in OECD countries, according to Taxing Wages 2015. The result is a widening wedge between overall wages costs and what workers take home. But what about emerging markets?
The story is mixed. In Brazil and China, the tax wedges for the single average worker in 2013 were between 33% and 34%, slightly below the OECD average. In Indonesia and South Africa the averages were low compared with OECD countries–8.2% and 14.3% respectively. In India the situation is quite similar: for an employee working in a business with more than 20 employees, the tax wedge reaches 6.2%.
In Brazil, China, India and Indonesia, the average worker pays little or no income tax, while the employer social security contributions component forms 70-80% of the tax wedge. In South Africa, income tax represents 11.4% of total labour costs, and accounts for about 80% of the total tax wedge.
Unlike the OECD average, the presence of children has little or no impact on the tax burden in these OECD partner countries, except in Brazil, where the second earner earning 33% of the average wage receives a family benefit called the salário família, which reduces the tax wedge slightly.
©OECD Observer No 303, September 2015